Ahead of the Curve

Mar 1, 2012

Carlos Garcia Moreno has proven himself to be one of the most skillful operators in the global capital markets, helping transform América Móvil into a truly global telecom.

by Paul Kilby

For anyone involved in LatAm capital markets, Carlos Garcia
Moreno has been an ever-present figure over the years, first as
funding manager for Pemex, then as head of external financing
at Mexico’s public credit department and today as
the CFO of telecom América Móvil (AMX).

Over the last year or so, América Móvil has
proven that it can stand against its global peers, in good part
thanks to Garcia Moreno’s efforts to convey this
story to the markets, and his ability to diversify the
company’s investor base as its funding needs have
grown.

Over the last 18 months, it has not only tapped dollar bonds
in standard blue-chip fashion – in size and with
several tranches – but also in Swiss francs, Chilean
and Mexican pesos, euros, sterling, yen and most recently in
renminbi – the region’s first ever Dim
Sum bond.

"Last year was a special year," says Cynthia Powell,
managing director of fixed-income syndicate at BTG Pactual.
"América Móvil was out there issuing successfully
in what felt like every possible market, often at times when
the markets were largely closed."

In some ways the company came full cycle last year when it
finally absorbed the fixed-line giant Telmex that gave birth to
it in the first place.

"The challenge has been to tell América
Móvil’s new story, which is already 10
years old, and how it was going to change its profile by
becoming an integrated telecom and much larger in the process,"
Garcia Moreno tells LatinFinance. "The first thing was to make
sure that everyone understood from the beginning that this was
a transformational change."

Garcia Moreno has been sounding this theme for several years
now, but it has been increasingly resonating among investor
bases that are either seeking diversification away from their
home markets, such as Asian accounts, or among Europeans who
increasingly see value in solid EM names that
aren’t associated with the turmoil in their own
countries.

Under Garcia Moreno’s watch, AMX has
transformed itself from being a relatively obscure mobile
spin-off of the larger fixed-line provider Telmex, controlled
by Mexican billionaire Carlos Slim Helú, into being a
global telecom giant known by a wide group of buyside
accounts.

The company now has a solid A2/A rating as rating agencies
recognized not only the diversity of its funding base but also
the diversification of its revenue streams which come from a
wide variety of countries, reducing the regulatory risks it
faces in Mexico.

Garcia Moreno is a CFO who understands his markets and knows
how to get the best out of the buyside that continues to lap up
the company’s issues whenever its comes to market,
say bankers who know him.

Sometimes talked about in hush tones among bankers who
compete fiercely for mandates from the expansionary
América Móvil, Garcia Moreno commands broad
respect, arguably mixed with a tinge of fear given his
reputation for being a hard-nosed negotiator.

Throwing Out the Rule Book

Never one to accept conventional wisdom, the CFO of
América Móvil has often thrown out the rule book
when it comes to funding, and is forever challenging
bankers’ and the buyside’s
assumptions on where AMX should price.

There is the story about how Garcia Moreno earlier in his
career as CFO at América Móvil took the local
buyside to task in 2005, when he disputed pension
funds’ (Afores) views over where the relatively
new mobile phone company should price in the domestic
market.

By going instead to the Europeso market, the company called
upon a competing foreign investor base and won the argument
against Afores after it printed a 10-year inside its local
curve.

"He was able to immediately shave 50-60 basis points off his
curve," remembers Alberto Ardura, head of Latin America DCM at
Deutsche Bank, "achieving overnight an important
repricing of América Móvil’s peso
yield curve."

As the company’s funding needs have grown,
Garcia Moreno has gone on to apply such methods elsewhere,
easing pressures in its core dollar market by showing US
investors that the company had easy access to funding in euros,
sterling and many other currencies.

Indeed, few, if any, Latin American borrowers have had such
an ubiquitous presence across the capital markets, including
sovereigns. All this is thanks to Garcia Moreno’s
ability to look above the parapet during times of crisis and
spot market trends which AMX has often taken a lead on.

He has a wealth of experience having been in leadership
roles over the past 20 years during which time Mexico has
passed through its fair share of crises. He was associate
director of finance at Pemex in the early 1990s when Mexico was
hit by its peso crisis and became head of public credit later
that decade.

"He is a very seasoned CFO," Ardura says. "He knows how the
market dynamics work, as he has held several important
positions during the years, and has gone through many
crises."

Long-Term View

Taking the company on the road in Europe in 2010, at a time
when Greece debt woes were causing another bout of risk
aversion, is just one example of Garcia Moreno’s
foresight as he looked to position the company against global
telecom names, including well-established European credits like
France Telecom, Spain’s Telefónica and
Deutsche Telekom.

He first tested the waters in the Swiss franc market and
then finally printed debut euro and sterling trades at a time
when many had written this market off as a viable financing
option.

"They were probably the only issuer conducting roadshows [in
Europe] at the time," Ardura says. "He promised investors he
would look to build a yield curve in the euro and sterling
markets, and he delivered coming back to both markets the next
year."

In his position since 2001 when América Móvil
was first spun off from fixed-line telecom Telmex, Garcia
Moreno has been at the helm of a company that is soon expected
to generate revenues north of $50 billion in part thanks to its
integration with Telmex.

"We came to realize that if you truly want to be in data
service, you cannot do it unless you have a fixed-line platform
that supports it," says Garcia Moreno, explaining the reasoning
behind bringing the two companies together. "You are now seeing
a convergence in which fixed and mobile are becoming the same
network. It is a unified network that may be accessed from
fixed or wireless."

Creating Something New

The estimated $4.58 billion price tag for the last part of
the transaction involving the purchase of Telmex shares it
didn’t already own, and a similar operation for
Brazilian cable operator Net Serviços, sparked a series
of capital market forays, making América Móvil
one of the most active corporate borrowers out of the region
over the past year or so.

Garcia Moreno estimates roughly that the entire Telmex
transaction was valued at around $25 billion, including a $10
billion cash payment for Telmex and Telmex Internacional and
the $2.5 billion purchase of the Net Serviços shares the
company didn’t already own.

"About $12 billion was spent over the 18 months, and it
completely changed the profile of América Móvil,"
Garcia Moreno adds. "The company is now much larger both in
terms of revenue and Ebitda."

For the full year 2011, the company reported an Ebitda of
about 252.6 billion Mexican pesos ($20 billion) and total
revenues of 665.2 billion pesos ($51 billion), a rise of 1.6%
and 8.7% over the previous year. Revenues are expected to raise
even further once Net is consolidated into the numbers.

This comes on the back of what was arguably one of the largest
funding sprees for a corporate out of the region. Ever since
the company became the first issuer to tap the local Chilean
bond market in 2009, it has raised close to $9 billion in the
bond markets alone, in at least seven different currencies.

AMX was also thought to have saved itself a considerable sum
in fees after squeezing banks on pricing last year when it
conducted an unusual auction system to mandate for a $4 billion
loan.

The one-day closed door session in New York was heard to
have ruffled a few feathers for the unconventional way it
awarded mandates, but for the company the results were more
than satisfactory. In April, it priced a $2 billion 3.5-year at
Libor plus 50 basis points and a $2 billion equivalent
euro-denominated five-year at Euribor plus 60 basis points.
Such levels have inspired other companies to try their luck in
the bank market as well.

In the immediate future, the company’s capital
markets activity is likely to wane somewhat now that the Telmex
integration is finished. With substantial cash flows,
América Móvil has little need to raise funding in
the external market, except opportunistically. Last year, for
instance, the company funded capex of just under $10 billion
entirely with its own cash.

"Going forward, I don’t think we will be as
active in the market, unless there is something involving an
acquisition, and even then it will have to be something with
scale for that to happen," he adds. LF

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